Gulf Finance House - Requests Six Month Extension for US100 Million - It's Not Looking Pretty

Earlier post had an erroneous amount US$200 million instead of the correct US$100 million.  This has been corrected with apologies to any who have been misinformed by my previous sloppy work.

This morning I posted that the Bahrain Stock Exchange had suspended trading in GFH's shares pending clarification of press reports on their negotiations with West LB.  And earlier this morning GFH issued a press release which was notable for the lack of any concrete information on the substance of those negotiations.

Between then and now, someone has taken time to "think again".

As per an article in the Gulf Daily News, GFH has now announced that it has requested the lenders of its US$300 million facility, led by West LB, to extend the payment of US$100 million for six months from the 10 February maturity date.

Frankly, this doesn't make much sense to me.  

1. GFH's problem is that its revenue from deal placement has pretty much dried up.  
2. This is not exactly the market in which one would expect to be conducive to a highly profitable sale of an asset.  
3. It has significant commitments.  At 30 September 2009, it had US$70 million in various commitments along with US$46.6 million and contingent financing obligations of US$170 million. (Note #12).  I believe, but don't know for certain,  that the latter relate to the Dubailand venture which GFH exited just in time for its 31 December 2009 financials.  
4. It's also hard to imagine another "bright" creditor stepping up to refinance this amount.  I suppose though if they could get an "implicit" guarantee someone out there might step up.Though with its rating now in CC territory, even an implicit guarantee might not be enough.  S&P comments like "We believe Bahrain-based Gulf Finance House's liquidity position is under immediate and severe stress" are unlikely to be the sort to attract bankers.  

I find it really hard to imagine that any of the issues is going to disappear in the next six months.

What's needed is a multi-year debt restructuring to enable GFH to right-size itself, pare down expenses and focus on core businesses.  In other words to reverse its strategy 180 degrees. In my opinion six months is scarcely enough time.  That's the sort of time some obligors appear to need just to come up with a standstill request.

In this vein the following quote is remarkable.

Acting CEO Ted Pretty said: "The management team at GFH has four key priorities, namely grow revenues, reduce costs, improve its liquidity and exit non-core assets.

I'd like to suggest a fifth priority which I think is the most important, assuming that GFH intends to continue in business:  urgently address its liability structure, including significant near term maturities  by repaying/refinancing its existing debt and building a sustainable liability structure.  This is not only the key to continued existence, but also is the issue that has the shortest fuse.  The first step to dealing with a problem is to recognize and acknowledge the problem.